Thursday, March 4, 2010

Deficit Hysteria and the Budget

Good discussion over at G&M with Tom Flanagan. I hate his politics, but he's a pretty forthright kind of guy, and sometimes deviates from the Party line.

In truth, I'm kind of happy with the consensus that this budget won't be about a narrow minded crusade against the deficit. As much as it pains me to say it, the CPC seems to be taking the prudent course with the budget. I'd prefer a reversal on the GST, but I'm happy enough that they don't seem to be declaring war on the public service.

I'm actually quite surprised. An obsession with balanced budgets is a defining characteristic of your average "fiscal conservative". In fact, Canadians on the whole have come to expect balanced budgets, and various media polls seem to suggest that slaying the deficit is what they're looking for from Flaherty today. Of course nobody is actually willing to pay for that, unless of course it means taking on those nasty public servants, but there's a general consensus that deficit=bad. So I'd suspect that some people might be surprised at Flanagan's lack of concern over the deficit.

The fact of the matter is, deficits in the short term, and even in the long term for countries like Canada, rarely result in catastrophe. Certainly dealing with the deficit can easily become far more damaging than not dealing with it. Something like 80% of Canada's debt is domestic. Servicing it doesn't result in money disappearing in a puff of smoke.

I have a feeling that household metaphors got us in to this strange frame of mind, nonetheless, we need to stop thinking of the deficit, and Canadian debt, like credit card debt, and start thinking about it like a mortgage. That money is coming back sooner or later and, unlike a 500 square foot condo in Vancouver, there's very little chance we're going to lose money on the investment.

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